Groves grilled at ABC Learning trial

Updated
April 15, 2010 00:51:00

The founder and former chief executive of ABC Learning, Eddy Groves, has told a court the collapse of the childcare operator was not his fault, but admitted financial reporting systems were not up to scratch.

ANDREW ROBERTSON: Inside, Mr Groves talked about the early history of ABC Learning and its first foray into debt.

In 1996, stockbroker Austock offered to raise $6 billion to help fund the expansion which led to ABC's sharemarket listing in 2001.

Mr Groves says he was surprised. "I thought you had to crawl on hands and knees to get money from banks."

A decade later, the world was a very different place. Mr Groves says the market was telling ABC, "Don't have a lazy balance sheet. Get more debt."

He says the board discussed the issue then looked at different ways of raising debt, a process which transformed ABC Learning into the world's largest childcare provider.

And then came the Global Financial Crisis.

"The outside world changed dramatically with the Global Financial Crisis. It had a dramatic impact on ABC," sending the company to the wall with debts of $2 billion.

Mr Groves' harshest words in the witness box were for David Ryan, the man who succeeded Sallyanne Atkinson as chairman of ABC Learning in mid-2008.

Mr Groves said the two had an excellent working relationship until Mr Ryan lied to him. The issue was Mr Ryan's willingness to stay with the company.

"He told me we were both in it for three years to restore the company to its former glory. I sacrificed 100 per cent of my salary as a sign of my commitment. But when the going gets tough, corporate people look for the exit."

Mr Groves said their relationship deteriorated after auditors raised concerns about the accounting treatment of fees from developers which had been included as revenue.

It threatened to wipe more than $130 million off ABC's earnings for the previous three years, figures Mr Groves said were etched in his brain.

He said Mr Ryan went into meltdown because he'd been chairman of the audit committee for three years. "From that day on, he was rattled and panicked."

ABC Learning's shares plummeted on 26th February, 2008 in response to a 42 per cent fall in first half earnings.

Mr Groves described that day as a company-changing event and explained how its expansion program was wound back amid fears it would run out of cash.

And in a statement which could well be his corporate epitaph, he said, "Any company with cash survived the GFC. Company without cash didn't."